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SanDisk Corporation, a leader in flash memory storage solutions, is set to release its Q4 2012 earnings Wednesday, January 23. The company reported revenues of $1.3 billion in Q3, which was a 10% decline year-over-year, but a 23% increase on a quarter-on-quarter basis. Overall, we think that SanDisk has positioned itself well in an industry, which is struggling due to oversupply.

We saw signs of NAND price stabilization in SanDisk’s Q3 earnings and will be closely watching whether or not this trend has continued during Q4. Additionally, we will watch SanDisk’s market share in the Solid State Drive market because this product line will be the key to the company’s growth going forward.

A major drag on SanDisk’s profitability over the last year has been a decline in NAND flash prices. However, the company was less affected by these declines in Q3 2012, as it reported sequential price declines of only 8% for the quarter compared to 20% for Q2 2012. We think that this trend will continue as large NAND flash manufacturers have kept cutting capital expenditures over the past quarter, which over the long term should help bring stability to NAND flash prices.

We are confident of this prediction because one of SanDisk’s competitors, Micron, reported that there was a 5% increase in the average selling price of NAND flash towards the latter part of fourth quarter. However, the company still maintains that it is difficult to forecast the future trend in prices. We will be closely watching what SanDisk’s management has to say about NAND flash prices to better understand how it fared during the quarter.

SSD Will Be A Big Driver Of Growth

We currently estimate that SanDisk’s Solid State Drive segment makes up approximately 10% of its total value. During the company’s Q3 earnings call, management stated that the division generated close to 10% of SanDisk’s total revenues, which is a big increase from the make up in 2011, which was around 1% of total revenues.

We think that this division will be a big driver of growth going forward, mainly because SSDs seem to be taking over traditional hard drives as the primary form of storage on laptops and enterprise servers. The key for SanDisk in this segment will be enterprise SSD demand, which is being fueled by the movement towards the cloud. Cloud servers need fast hard drives to locate consumer data quickly, and SSDs are the best options for enterprise servers at present. Therefore, we will be closely watching for a change in SanDisk’s market share in the SSD market during this quarters earnings announcement. This is important because if SanDisk is able to capture approximately 18% of the SSD market, it would cause around 10% upside to our price estimate.